NEW DELHI : The unprecedented challenges thrown by covid-19 might have derailed the retirement plans of many. Those nearing retirement amid the pandemic may have to give their financial plans a hard look.
Rajiv Bajaj, chairman and managing director, Bajaj Capital, in an interview with Mint, shared some of the ways forward for those who are about to retire over the next few years.
How has covid-19 impacted those who are nearing retirement?
Those nearing retirement may have to rework their retirement plan and may even have to bring about a radical change in their investment portfolio. The March 2020 stock market crash dented fund values big time. While those who are years away from retirement will have the time to rebuild, those nearing retirements are affected the most. The lesson in the making is that when retirement or for that matter any goal is nearing, one should de-risk from volatile equities to less volatile debt assets. The process of shifting funds should ideally begin three years away from the goal.
How should one protect their life savings at this juncture?
First, make sure you have adequate emergency funds to tide over emergencies in the retirement phase.
Diversify across some fixed-income investments for meeting your regular income needs. Importantly, spread your savings across different tenures to take care of interest rate risk and also the liquidity of funds. The role of equity-oriented or hybrid mutual funds also remains significant during your retirement years. Remember, as a retiree you need to have an equity allocation in your portfolio that will run for the next 3-4 decades.
Also, keep adequate medical insurance for yourself and your spouse to avoid dipping into your savings. Mental engagement in an activity serving your passion would ensure your mental well-being, besides financial well-being. In the post-covid world, planning for balancing one’s health and immunity will gain currency.
What steps must one take when one is nearing retirement?
If there has been any impact on your income over the last year, it is time to revisit your risk profile and assess your financial position. Avoid taking money out of the provident fund or resorting to loans as they will hurt your retirement savings. Also, do not divert funds earmarked for retirement to meet short-term needs. After all, you will not want to delay your retirement or look for a secondary source of income after retiring.
You may also have to rework your retirement numbers. With low-interest rates and inflation inching up, you may have to give a close look at the post-retirement scenario. Involve your spouse and a financial planner to build up a household budgeting worksheet to estimate the post-retirement expenses. Remember, a retiree needs to devise a plan for 100 years of comfortable living, which includes non-earning years for many. Many don’t get pension income after getting retired.
What value does a fee-only adviser bring to a retiree’s portfolio?
Fee-only advisers are more inclined to be independent by design. But rather than seeing this criterion alone, we need to see if your adviser is truly independent and unbiased by conduct, and this can be assessed if they have a long pedigree of serving their existing clients well.
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